Pareto-improving reforms of tax deductions

Sebastian Koehne and Dominik Sachs

European Economic Review, 2022, vol. 148, issue C

Abstract: We analyze Pareto-efficient tax deduction rules for work-related expenses. Pareto efficiency dictates a strict rule for marginal deductions along the income distribution. An immediate implication is a recipe for designing Pareto-improving reforms. We apply our theory and simulate a Pareto-improving reform that introduces deductions for non-care household services (housekeeping, gardening, laundry) in the United States. The reform combines marginal deduction rates for household services between 55% and 85% with a slight increase in marginal tax rates.

Keywords: Optimal taxation; Tax deduction; Pareto-improving tax reform (search for similar items in EconPapers)
JEL-codes: D82 H21 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Pareto-Improving Reforms of Tax Deductions (2020)
Working Paper: Pareto-improving reforms of tax deductions (2020)
Working Paper: Pareto-Improving Reforms of Tax Deductions (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:148:y:2022:i:c:s0014292122001234

DOI: 10.1016/j.euroecorev.2022.104214

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